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“Cynically Ignoring the People”

Thomson Reuters Tax & Accounting Blog05/16/17 David Brunori

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Do you want to know why people hate politics? Politicians? Just look to Oregon. Just last November, voters in Oregon rejected the creation of a gross receipts tax by a 59 to 41% margin. That is a landslide. Why? Perhaps the citizens of Oregon realized that a gross receipts tax is an awful way to raise revenue. It is regressive. It is hidden – unfortunately, a fact that politicians like. It creates pyramiding – another fact that does not seem to bother some politicians. Perhaps the people realized that a gross receipts tax is essentially a tax on consumption. Oregonians have been rejecting sales taxes for decades. Perhaps the people of Oregon believed the legislative analysts who predicted fewer jobs and higher prices. And maybe, just maybe, Oregonians just didn’t want to pay more taxes. It is after all, their money.

You would think that after a crushing defeat, pro gross receipts people would give it a rest. But six months later, they are back at it – legislatively. The people who want to adopt a gross receipts tax are taking their case to the legislature. That is right. After the citizens soundly rejected the idea, the pro taxers are asking the legislature to ignore them. I am not sure why that happens. It seems downright insulting to me.

Proponents of a gross receipts tax are couching their plan as comprehensive tax reform. Apparently, they want to repeal the state corporate income tax, and impose the new gross receipts tax on all businesses (the previous attempt was aimed at corporations). This is exactly what Ohio did when it adopted the commercial activity tax. As many know, I am no fan of the state corporate income tax; however, it is far superior to any gross receipts tax.

Public employee unions are strongly backing the new plan. Incredulously, they are asserting that the gross receipts tax is a way to get corporations to pay their fair share! But, everyone who has ever studied a gross receipts tax for five minutes knows that the tax will fall on consumers in the form of higher prices. But, forget the policy argument for a moment. What galls me is the cavalier rejection of the wishes of the people.

Best Idea of the Year

Hopefully, I will write about this more in my next column. But, it seems like the effort to repeal the Texas Margin Tax is moving forward. This is a terrific move as the Texas tax is really a monster. It is confusing. It is inequitable. And while it raises a lot of revenue, it actually hurts the state’s otherwise good business reputation.

Taxing Healthcare in Vermont

There is a bill in Vermont (H538) that would broaden the state’s income tax base. That is generally a good thing. We good tax policy purists like broad bases. Of course, we also like low rates. This measure would change the way the state uses federal taxes to determine the state tax. Currently, Vermonters start with federal taxable income (income after most deductions). The bill would have Vermonters start with federal adjusted gross income (income before most deductions). This basically means the state is decoupling from most federal tax breaks. But, the measure also will eliminate the exemption for many employer provided health care benefits. Most states and the federal government exempt employer provided health care from income tax. The exemption creates one of the biggest tax expenditures at all levels of government.

Base broadening is good. But, Vermont has among the highest marginal rates (8.95%) in the nation. Ideally, the sponsors would use some of that extra revenue to lower the rates.

Covering all Bases

The Massachusetts legislature is considering a bill (H3666) that would require the commonwealth to comply with any law passed by the U.S. Congress with respect to sales and use taxation of remote sellers. So, if Congress passes the Marketplace Fairness Act of 2017 or the Remote Transactions Parity Act of 2017, Massachusetts will automatically comply with federal law. This is generally a good idea. But, both federal measures are motivated by Quill remaining good law (although, they will be needed even more if Quill is overturned).

Of course, Massachusetts has also joined the effort to kill Quill. The Massachusetts Department of Revenue administratively determined that any remote retailer with over $500,000 in sales into the commonwealth must collect and remit sales and use tax. I am generally a fan of the Massachusetts Department of Revenue. I think it is run by smart, dedicated professionals. They also must think there is a good chance that Quill will be overturned.

More Local Income Folly

Seattle is now considering a “progressive” income tax to be imposed to further the goal of income inequality. Seattle politicians should read Paul Peterson’s City Limits. Basically, the Harvard professor asserts that local governments cannot redistribute wealth in any meaningful way. The only income equality Seattle will see from an income tax is when the rich folks leave. That will level the playing field. In any event, in the future, if you want to rub elbows with the rich and famous, don’t go to Seattle. They won’t be there.

Missed Opportunity

I wrote in my previous column about the proposed tax reform plan in Nebraska. I noted that the plan was good, but not bold. Most politicians like good and fear bold, so you would think the proposal to provide badly needed reform would bode well. Alas, the Nebraska senators did not think the measure nearly as good as the Tax Foundation and I did. My friends in Lincoln told me that there was not enough attention paid to the farmers who managed to scuttle the bill.

The Real Resistance

Former New York City Mayor Michael Bloomberg and just about the entire political establishment of Sante Fe, New Mexico wanted a soda tax. So the political elites put a 2% per ounce tax on the ballot for March 8. Soda taxes, like most excises, are awful, cynical ways to raise money. They pick on a particular industry. In this case the tax would have been collected from soda distributors. They are regressive – a fact ignored by liberals who are supposed to be looking out for the little guy. They have no redeeming value. They will not reduce obesity. The only way the government is going to reduce obesity is to conscript all overweight citizens and make them run five miles a day. Proponents, particularly Bloomberg, preached that the tax would nudge people away from unhealthy drinks. That is what the folks in New Mexico want – a billionaire in Manhattan telling them what is best.

Actually, the people of Sante Fe did not want that. Voters rejected the tax by an 11 to 8 margin. The supporters of the tax were motivated by the city’s promise to earmark the revenue for pre-k education. Apparently, they thought education was not important enough to pay for with broad based taxes. In any event, we should raise a glass of iced cold soda to salute the good people of Sante Fe for resisting.

It’s Trivial

Last week’s answer was Johnny Cash. This week we will keep the musical theme. A decidedly lefty British folk singer often boasts of attending book fairs in Pyongyang and the romanticism of the Che Guevara Highway. His third album, and my favorite, is Talking to the Taxman about Poetry. First person to identify the singer will get a copy of my State Tax Policy book. Father’s Day is around the corner. Nothing says “I love you, Pop” like a tax policy book.

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Originally published in Thomson Reuters Tax & Accounting Blog, May 16, 2017